4.3 The sustainability frameworks that matter most
· 11 min read
This article is part of the Sustainable Finance Guide, a new series by Globalfields in collaboration with illuminem. Together, we provide readers with clear, educational insights into where sustainable finance stands today and how it is evolving to support nature, regeneration, and long-term resilience.
In a world gripped by climate crises, social inequity, and eroding trust in corporate promises, business behaviors are undergoing a radical reassessment.
Profit and performance no longer define success. Today, it is ultimately how those profits are being made, who benefits, or who bears the cost. More than ever, investors, regulators, employees, and consumers expect companies to operate with transparency and responsibility, driven by a purpose and an eye to sustainability.
Central to this transformation is the Environmental, Social and Governance (ESG) approach and related regulations. It now serves as the dominant framework for evaluating companies, identifying investment risks, and making long-term strategic decisions.
Sustainable finance itself pivots on ESG standards, which guide ethical, strategic and investment choices that shape not only markets but society at large [1]. ESG is a multidimensional metric that integrates climate risk, social responsibility, and ethical governance into the heart of financial decision-making.
Once a niche concern, ESG has now become a mainstream priority in the financial world and is the very foundation of sustainable finance.
Major companies, such as Microsoft and Unilever, have publicly committed to ESG principles, highlighting the ever-growing importance of sustainable practices [2]. In the EU policy landscape, ESG integration is seen as vital to achieving climate goals due to the steering of investments into activities that support sustainable development while ensuring transparency around ESG-related risks [3].
This uptake in ESG is not merely regulatory, but also rational.
ESG enables investors to identify risks and opportunities previously invisible in traditional financial analysis. ESG criteria broaden understanding of risk, resilience, and value, allowing financial actors to allocate capital more responsibly and to actively anticipate long-term trends rather than react passively to a crisis.
According to a PWC report, ESG-related assets under management are expected to reach USD 33.9 trillion by 2026, growing at a compound rate of 12.9%. This shows a dramatic increase from 2021 figures, which showed ESG-linked assets at USD 18.4 trillion [4].
Thus, companies across the world are integrating ESG into their strategies, operations, disclosures, and investment decisions. ESG is not just a reporting exercise. When used properly, it can shape strategy, manage risk, and improve a company’s competitiveness.
Nonetheless, as powerful as ESG can be, it is not without challenges. Its frameworks are still evolving, its metrics are not always aligned, and its interpretation may vary. ESG can be a catalyst for impact, but it can also be misused as a tool for corporate greenwashing and superficial compliance.
This tension forms the backdrop of the sustainable finance landscape. While ESG is indispensable, its effectiveness depends on how well businesses understand, measure and integrate it, alongside a meaningful and genuine drive for real-world value.
ESG should not be understood as an acronym, but as a system of values that is much more than a reporting framework.
It is a redefinition of how value, risk and responsibility are understood in the modern economy - expanding the boundaries of traditional financial analysis beyond quarterly earnings and forcing companies to confront their actual footprint on the world.
ESG transforms seemingly abstract ideas, such as climate responsibility, human dignity, and ethical leadership, into measurable expectations. They expose risks hidden in traditional financial models. But to wield it effectively, key stakeholders must understand what each pillar entails.
Environmental factors look at a company in relation to the natural world – how it uses it, impacts it and protects it. These considerations may include climate change adaptation and mitigation, pollution prevention, biodiversity preservation and a shift towards circularity [5]. In practical terms, this covers a company’s carbon emissions, energy efficiency, waste management, water usage, and stewardship of natural resources [6]. Here, nature is viewed as a risk and not an externality. Acknowledging this for businesses could be a source of competitive advantage.
Environmental metrics, including carbon footprints, energy intensity, waste reduction and water consumption, ensure that companies are accountable [7]. It reiterates that environmental sustainability is not just an ethical choice, but it is a requirement for long-term value creation.
Social considerations recognise that companies do not operate in isolation from communities. This pillar covers labour relations, inclusiveness, human rights and the well-being of communities and workers [8]. It evaluates how companies treat their employees, suppliers, customers and the communities around them. It can probe whether working conditions are safe, wages are fair, or diversity is embraced.
Social metrics, including turnover rates, diversity indicators, community investments, safety incidents, and customer satisfaction, can serve as signals of a company’s social resilience.[9] It can reveal whether a business is strengthening the social system it relies on to function or is quietly eroding it.
Governance is the system of leadership, control, transparency and accountability that determines whether environmental and social ambitions are being upheld or quietly abandoned. Without strong governance, sustainability can collapse into symbolism. It encompasses management structures, board composition, employee relations, audits, and anti-corruption systems. It evaluates where decision-making is ethical, transparent, and aligned with long-term value.
When understood in relation to one another, the ESG pillars do more than assess performance – they redefine it. Thus, it has become the cornerstone of sustainable finance, expanding the concept of value, giving investors a more comprehensive view of risk and opportunity.
ESG has evolved from Corporate Social Responsibility (CSR), where environmental and social initiatives were often peripheral, to a core business priority. Initially, CSR allowed companies to focus on select activities while ignoring larger, more damaging issues.
This shift began in 2004 with the UN's ‘Who Cares Wins’ report, which emphasised integrating ESG factors into strategic and financial decision-making, proving that ESG could drive business value and societal benefits. Since then, ESG has become mainstream, driven by growing awareness of climate risks, social inequalities, and corporate accountability [10].
Double materiality, which considers both financial and environmental/social impacts, deepens the understanding of sustainability by recognizing the reciprocal influence between companies and society. As companies adapt their strategies to account for climate risk and environmental changes, ESG frameworks have expanded to address diverse objectives, audiences, and materiality perspectives.
The variety of potential areas of coverage when discussing climate change, as well as environmental and social impacts, has led to ESG development through a constellation of frameworks, each designed to address different objectives, audiences and materiality perspectives.
There are several ESG frameworks, which are outlined in the table below [11]:
The rise of ESG considerations reflects a growing recognition that environmental stewardship, social responsibility and strong governance are foundational to long-term value. Yet as ESG becomes more embedded in the financial landscape, organisations face both significant opportunities and structural challenges.
At its strongest, ESG can enhance profitability and efficiency. Companies with firm ESG profiles have demonstrated better operational performance, higher profitability, and lower financial risk. Practical measures such as reducing energy consumption and waste production can create direct cost savings while maintaining business continuity. Over time, this can translate into more resilient margins and improved competitiveness [12].
ESG also plays a role in reducing financial risk. Firms with credible ESG practices often benefit from lower costs of capital due to the reward of transparency, responsible governance and proactive risk management. ESG allows companies to identify and mitigate material risks, such as climate impacts and supply chain disruptions, before they escalate into financial losses [13]. In this sense, ESG functions not merely as a reporting exercise, but as a forward-looking risk management tool.
Beyond financial metrics, ESG can strengthen brand loyalty and trust. Businesses that demonstrate authentic ESG commitments enjoy higher retention rates, greater customer engagement, and clearer differentiation in crowded markets, boosting competitiveness [14]. In an era of greater social awareness and public scrutiny, trust has become a strategic asset.
Over the long-term, ESG contributes to business resilience and value. ESG strengthens governance systems, improves resource efficiency and prioritises transparency. Companies with strong ESG profiles are better positioned to adapt to changing market conditions, regulatory shifts, and global disruptions.
Despite these clear benefits, ESG remains burdened by challenges that may complicate its implementation and undermine its credibility.
One of the most persistent issues is the lack of standardisation across reporting frameworks. The absence of a single, universal standard has resulted in a fragmented landscape in which companies rely on differing methodologies, metrics and definitions. This inconsistency makes it difficult for investors, regulators, and the public to compare performances fairly, meaningfully and transparently. Though efforts towards harmonisation are ongoing, the landscape remains complex and ever-evolving [15].
The heavy reliance on self-reported data presents a further challenge. Given that most ESG information is self-reported, this raises questions regarding accuracy, transparency, and selective disclosure. Inconsistent measurement and varying degrees of detail can weaken the reliability of ESG assessments. Without robust verification, stakeholders may struggle to distinguish genuine performance from greenwashing, eroding trust in ESG as a whole [16].
Finally, the proliferation of frameworks - such as GRI, SASB and TCFD - has created challenges around alignment and integration. Differences in scope, materiality definitions and reporting objectives can lead to confusion and duplication. While many firms attempt to adopt multi-framework approaches, doing so effectively requires significant expertise, resources and internal coordination, which may be inaccessible to smaller or less mature organisations.
Even in the face of these challenges, ESG remains a critical approach to provide content and a reporting system for companies to stay engaged in the sustainable finance landscape.
If successfully applied with the intent of driving positive change, the ESG framework can strengthen risk management, support regulatory compliance, align companies with investor expectations, and create competitive advantages. Ultimately, ESG lays the foundation for long-term value creation in a world increasingly shaped by climate risk and economic uncertainty.
To achieve this, some critical changes are recommended:
Push the agenda on mandatory and standardised reporting. Sustainability reporting must become a legal requirement in the majority of jurisdictions, not merely a choice. Global alignment efforts, such as the International Sustainability Standards Board (ISSB) standards, are creating a consistent baseline for disclosures. Green taxonomy efforts are also providing clear principles and criteria to support countries and companies in understanding the parameters of eligibility when talking about sustainable, green and climate finance interventions. (See Article 2.1 for more detail on Green Taxonomies)
Continue combating greenwashing. Regulators worldwide and dedicated NGOs are fighting misleading or unsubstantiated environmental claims with stricter enforcement and hefty fines. This drives a need for authentic, verifiable data and clear communication to build consumer and investor trust.
Bring more emphasis on the "S" (Social) and biodiversity. While climate concerns remain critical, the "S" in ESG - covering human rights, fair labour practices, diversity, equity, and inclusion (DEI), and community engagement, including for indigenous people - is gaining prominence. Similarly, the focus is expanding beyond carbon to include the impact on nature and biodiversity, driven by frameworks like the Taskforce on Nature-related Financial Disclosures (TNFD).
Continue the process of integrating ESG and sustainability investments into companies’ core business strategy. ESG is no longer a peripheral corporate social responsibility (CSR) function but must become embedded in core business strategy and financial decision-making. This will require that more and more companies recognise that sustainability drives innovation, reduces risk, attracts talent, and enhances long-term competitiveness.
In conclusion, sustaining the growth of sustainable finance is more crucial than ever, even in the face of political pushback and reduced public climate finance.
The demand for green financial products, such as sustainability-linked loans and bonds, continues to rise, highlighting the importance of ESG frameworks and metrics in guiding investment decisions and assessing risks. As we move forward, maintaining this momentum is essential for achieving long-term sustainability goals. For a deeper exploration of how we can ensure a fair and inclusive transition, explore our next article on the Just Transition.
The views expressed are for informational purposes only and do not constitute financial, legal, or investment advice.
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